A little-known law has had a noticeable impact on the number of IPOs in 2013—and an impact on lack of marketability.
The Jumpstart Our Business Startups Act, which Congress passed in 2012, makes it easier for smaller, emerging-growth companies (EGCs) to have an IPO by lessening the financial reporting requirements. Through Aug. 31, 2013, there had been 132 U.S.-based IPOs, a number that has already exceeded the total of 128 IPOs from all of 2012, according to an article by Brian K. Pearson, managing member of Valuation Advisors LLC. Of course, the gradual rebound in the economy has helped the process, but a much bigger impact on IPOs this year is due to the new law, he says.
Greater discounts: According to the Valuation Advisors Lack of Marketability database (available at BVResources.com), the size of the discounts in 2013 is greater than 2012, while the company size (based on revenues) is significantly smaller. Clearly, this is a result of EGCs with more speculative futures going public under the less restrictive new law.
BVR is making available a free copy of the article, "The Increase of Initial Public Offerings (IPOs) in 2013 and the Impact on Lack of Marketability," which includes details on the new law and its impact on lack of marketability. To access the article, click here.